2016 ppqs

Question 1

Describe what is meant by the term “austerity”.

Answer 1

The measures taken by a government to shrink a

budget deficit

Question 2

Describe what is meant by “national debt”.

Answer 2

The total amount owed by an economy/country/
government.
A deficit is when spending exceeds income

Question 3

Explain why measures to reduce a national debt may conflict with other
government objectives.

Answer 3

Debt reduction may involve reducing government spending (ID) which may result in less public sector jobs, increasing unemployment

Reduced government subsidies/funding may increase costs of production (ID) causing cost-push inflation.

Question 4

Explain the effects of the relatively slow recovery in the Eurozone on:

(i) UK businesses
(ii) the UK economy.

Answer 4

UK businesses
 These nations are the biggest customers for our exports so demand may fall (ID) leading to falling revenue/profits as they struggle to recover. (1 mark)
 The lack of profits means businesses may put expansion/diversification plans on hold.

The UK Economy
 European customers may buy less UK exports (ID) which will have a negative impact on the Current Account of the Balance of Payments. (1 mark)
 Less FDI from Europe may take place in the UK (ID) which will have a negative impact on the Capital Account of the Balance of Payments. (1 mark)
 UK exporting firms may contract (ID) which will worsen UK unemployment figures.

Question 5

Outline the factors which affect the exchange rate for the pound sterling.

Answer 5

Change in foreign direct investment (1 mark)
 Change in demand/supply for UK exports/imports/ pounds (1 mark)
 Change in interest rates in the UK (1 mark)
 Change in number of foreign holidaymakers visiting
the UK/UK holidaymakers travelling abroad

Question 6

Describe a fiscal policy measure which could be used by governments of Eurozone countries to achieve economic growth.

Answer 6

Reduction in tax (1 mark) increases disposable incomes so consumers may spend more.

Increases in government spending (1 mark) will
increase public sector jobs/public/private sector contracts/incentives to work etc.

Question 7

Explain why “income inequality” is regarded as an example of market
failure.

Answer 7

Income inequality is an inefficient allocation of resources (ID) which results in gaps in income and wealth between different groups/everyone does not have equal access to resources (ID) and therefore this is not efficient (1 mark)

Some/wealthier people have access to more resources than others therefore they have more choice.

Question 8

Describe government interventions which may be used to reduce the effects of a market failure.

Answer 8

Taxes are used:
o to redistribute wealth/reduce poverty. (1 mark) o to reduce pollution. (1 mark) This increases

costs of production, encouraging reduction in
supply.

public goods ie goods which would not be
provided in a free market (1 mark) eg street
lighting.

Question 9

Describe the uses of a country’s National Income statistics

Answer 9

Compare figures against other countries. (1 mark)
 Compare figures against previous years. (1 mark)
 Calculate the country’s rate of economic growth.
(1 mark)
 Evaluate/compare living standards in a country
(1 mark) by dividing the NI by head of population.

Question 10

Describe the reasons why governments restrict trade.

Answer 10

To protect an infant industry in a competitive market (1 mark). Restricting trade stops foreign competition and this allows the infant industry to find its feet and to grow. (1 development mark) This is because overseas competitors may have economies of scale as yet unavailable to the infant industry. (1 development mark)

To improve the Balance of Payments by reducing imports. (1 mark) This would reduce demand for imports and therefore help reduce a deficit.

To prevent ‘dumping’. (1 mark)

To protect employment